U.S. retailers raise minimum wage ahead of schedule

By MICHAEL BODLEY and The Baltimore Sun

Jul 05, 2014 | 1:30 PM

Juggling the rising cost of textbooks, tuition, food and rent is a little more manageable now for rising University of Maryland, Baltimore County senior Keyerra Jeter, thanks to a June 1 raise in starting pay to $9 per hour for Gap Inc.'s 65,000 employees.

"It was difficult, with everything being so expensive all the time, to budget for everything on a minimum-wage salary," saidJeter, an employee of the Old Navy in Waugh Chapel. "I'm just thankful the increase has let me better meet the needs that I have."

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Gap Inc. brands — Gap, Old Navy, Banana Republic, Piperlime, Athleta and Intermix — are among a growing group of major U.S. retailers now paying more than the federal minimum wage of $7.25 an hour for entry-level employees. Others include Ben & Jerry's, Costco, Ikea and Whole Foods. Paying workers more reduces turnover and hiring costs, the businesses say, because it makes for happier employees who stay longer and better serve customers.

In Maryland, the companies are ahead of the gradual curve of a new law that will raise the state minimum wage to $10.10 an hour by July 1, 2018. In January, the current minimum of $7.25 — defined by state and federal law — will increase by 75 cents to $8 per hour, with periodic increases scheduled through 2018.

Companies that fought the increase said increased overhead costs would lead to shuttered storefronts and job losses. The Maryland Chamber of Commerce said businesses in a struggling economy can't afford more overhead.

"Whenever there is a nonmarket force dictating the expense side of the ledger, it's tough on businesses, tough on employers, and that requires businesses to take a look at all the other expenses, including how many people they can employ," said Brien Poffenberger, president and CEO of the Maryland Chamber of Commerce.

But, others say, higher wages can also bring some cost reductions.

Paul Villareal, manager of the Old Navy store in Waugh Chapel, said he's saved money by slowing high employee turnover rates common in the industry. According to the U.S. Bureau of Labor Statistics, monthly retail turnover reached 4.8 percent in April, up 20 percent from the previous year.

"Paying more to attract talent, it gets stability in the store," Villareal said. "In retail, there's a high turnover rate. With a better wage, you can slow down talent and keep them longer. Some employees never thought they could be worth this much to a company."

New Gap employees must undergo a six-month "apprenticeship," during which they earn less than the $9 per hour minimum. The training program, which also started in June, allows the company to gauge the fit of a new hire, Villareal said.

David Cooper, an economic analyst for the Economic Policy Institute, said companies paying more before they are required by law get to choose from the "pick of the litter" when it comes to hiring.

"What you're seeing with these companies that are choosing to get out ahead of the mandated increases is that they're recognizing that this is smart from a business perspective, because it will let them hang on to good workers, but it also allows them to attract more workers now before the wages go up," Cooper said.

Since Aaron Moon started working for Old Navy fresh out of Bowie High School in 2011, the Waugh Chapel associate said he's been waiting for the "well-deserved" pay bump.

"It shows a sense of performance value," Moon said. "The managers and the head of the company have been looking at you and deciding what your work is really worth, and now you get it."

Raising wages differentiates Gap stores from the competition, said Paula Conhain, a spokeswoman for the San Francisco-based retailer.

Maryland employees of the grocery store chain earn a starting wage of $10 per hour. After a probationary period, employees working more than 20 hours per week are eligible for benefits, including health and dental plans.

"Whole Foods Market is proud to offer one of the most comprehensive and competitive compensation packages in the grocery industry, which is in keeping with our core value of supporting Team Member happiness and excellence," Park said in an email.

The 3,000-strong nationwide network of businesses and executives, Business for a Fair Minimum Wage, said benefits of a wage raise can be seen by looking past the increased labor cost to the "long-term savings in the big picture."

"We've found in practice, for most businesses, it's customer-neutral and economically beneficial in many cases, and in some cases it means doing things a little bit differently," said Alissa Barron-Menza, vice president of Business for a Fair Minimum Wage. "If you just look at the costs and look at where you're going to have to reduce short-term, you're not going to see the whole picture."

The network includes major U.S. retailers such as Ben & Jerry's, Costco and Organic Valley, though the majority of members are small businesses. Costco's 10 Maryland locations start employees at $11.50 or $12 per hour — a uniform wage nationwide — according to an email from Pat Callans, Costco senior vice president.

In late June, Ikea became the latest major retailer to say it would raise its employees' base wages, adding that the move is in anticipation of further U.S. expansion. Unlike Gap's uniform nationwide pay, Ikea's wages will vary based on the cost of living for a single person in each region. The furniture chain has promised no price increases in stores as a result.

Workers at 33 of Ikea's 38 U.S. locations can expect higher wages on Jan. 1, when the measure takes effect, according to an email from the retailer. At the Ikea in College Park, 250 employees will earn at least $13.20 per hour next year, said manager Frank Briel.

"Before, our pay was based upon our competitors and what they were paying, not really what it costs to live in different areas," Briel said. "This is our first time we've looked at it a different way, and it was based on the cost of living, not the cost of labor."

In a statement, the retailer said: "This is not only the right thing to do, it also makes good business sense. Ensuring a great work environment is essential for our business success — for meeting our customers' expectations and for developing our co-workers."

National retailers that are boosting their base wages already tend to pay most workers more than the minimum wage and see a public-relations benefit in moving to higher levels, said Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University.

"As wage rates go up, you find more technology and fewer workers, and that's continuing to happen," he said. "It allows companies like Costco and Ikea to say we pay above the minimum wage."

Bigger chains, which can buy in larger volumes and keep prices lower than competitors, rely on technology and a more efficient workforce with fewer entry-level jobs to keep from passing along higher labor costs to customers, he said.

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"But small companies have a much harder time doing this," said Fuller, who estimated that a wage increase to $10 per hour will lead to higher prices in stores and a loss of 11,502 Maryland jobs.

"When you raise the minimum wage, there is a cost," Fuller said. "Someone has to pay for that. … It has to come from profit, from higher prices, from loss of jobs."

It may be harder, but it hasn't been impossible for Amanda Rothschild, managing partner of Charmington's, a cafe in Charles Village. Since the coffeehouse opened in 2010, its employees have earned more than the state minimum, she said.

This May, Rothschild increased base pay for her 15 employees to $8.75, plus tips and paid time off based on hours worked. Full-time employees are eligible for health insurance.

She said the measures have led to a turnover rate of 30 percent per year, less than half the 62.6 percent industry average in 2013 found by the U.S. Bureau of Labor Statistics.

"When you have really well-trained individuals working through your company, you have so much less waste. … Your customers are a lot happier," Rothschild said.

For small businesses and large retailers alike, Barron-Menza said the basic math of higher wages costing more doesn't hold up over time.

"Sometimes those knee-jerk reactions, the idea of raising the wage — folks feel like, 'I have a slim margin of profit, so of course if my labor costs go up, it's going to raise my overhead.' What I've seen in practice is that businesses have a decrease in costs in other places."